Ever heard of Ron Johnson? Probably not. But have you been to an Apple store? Probably so. Ron Johnson is responsible for making the Apple store what it is. The look, the feel, the service. It’s all an amazing accomplishment. Before he worked at Apple he did similar things for Target. Well Johnson thought it was time for him to run his own company and took over the top spot for JC Penney last year. Penney hasn’t been having a good time lately so Johnson quickly made some changes.
The biggest change he’s made has been the store’s pricing scheme. Previously, Penney would offer lots of special sales and discounts. They’d show you the price the item originally was and how low it is now. The deals would be sweetened with coupons or cash off offers usually sent to the more loyal customers.
This is a system I commonly refer to as the “Kohls model” not because they pioneered it but that’s the store I first noticed the strategy at. Kohls will say some shorts were originally $49.99 but are now just $24.99. You’ll think you’re getting a great deal when in fact those shorts are barely worth $24.99 to begin with. Deals are often sweetened for frequent customers or those that use their credit cards. This makes the customer think they’re getting a good deal.
JCP, under Ron Johnson’s new leadership, decided this method was too complicated. They simplified the pricing. Instead of “$49.99 now $24.99” it’s just $24. The tags were made simpler too. All the signage was changed. The new message was everyday low value. Simplicity in messaging and pricing, that’s what customers want.
Long time readers will likely have already noted that the strategy isn’t working out quite so well. Store traffic is down, sales are down, and after spending a billion dollars on new advertising they’re lowing money. As it turns out, the customers don’t want low prices and simplified sales tags.
Well, they might, if they knew the value of the product. Customers don’t really understand value all that well. We need to be told what the value is, especially for less known brands that are typically sold at stores like JCP and Kohls. The former strategy was to pretend the brand was worth one price and then actually sell it at a much lower price, or in a “buy one get one” type situation. By anchoring the customer to a higher price point, they create the perception of value. A customer thinks they are getting a $50 pair of shorts for half the price. This makes the customer happy.
But JCP is trying to simplify the system, a strategy I fully endorse. But the problem is the customer just doesn’t respond to that. In the absence of better words, the customer is too stupid and irrational to ever make such a connection.
So what ins JC Penney to do? According to Businessweek they’re going to stick with it for a while. They need to fix their brand messaging so the customers will understand. From there on out they plan to rejigger the store layout and introduce new lines to take the store in a different direction than where it was headed. Will the customer stick around without coupons? Ron Johnson sure hopes so.